Feel­ing its way

Har­mony Gold still in flux af­ter failed cor­po­rate en­deav­ours

THE END OF MARCH RAISES THE prospect that the large over­hang in Gold Fields shares could be re­leased. That’s when Bar­rick Gold, JCI and Har­mony Gold are per­mit­ted to sell the Gold Fields shares they were paid for sell­ing their re­spec­tive in­ter­ests in the South Deep mine.

One ex­pec­ta­tion is that Har­mony Gold will be the com­pany to sell its Gold Fields shares first, a view partly based on spec­u­la­tion that it’s close to com­plet­ing a cor­po­rate deal. First, how­ever, Har­mony Gold must im­prove the look of its bal­ance sheet, prin­ci­pally a loan of about R1bn pro­vided to the com­pany by Rand Mer­chant Bank (RMB).

“I’d be very sur­prised if we sold our Gold Fields shares soon,” he said in an in­ter­view with Fin­week. “The cur­rent share price doesn’t re­flect any­thing like what we’re af­ter. So I’d have to say we’re pretty com­fort­able with that stake.”

Har­mony Gold owns about 2,6% of Gold Fields, which is equal to about R1,35bn at Gold Fields’ cur­rent share price of R123/share.

Ru­mours con­tinue, how­ever, that Har­mony Gold is in­volved in fresh cor­po­rate ac­tion of sig­nif­i­cance, in­clud­ing quite breath­tak­ing spec­u­la­tion that it’s con­sid­er­ing a deal with Rus­sian gold pro­ducer Polyus Gold. Un­char­ac­ter­is­ti­cally, Swanepoel has of­fered – through his in­vestor-re­la­tions of­fi­cer – a terse “no com­ment”. It’s dif­fi­cult to in­ter­pret what this is sup­posed to mean. (Nor­mally, Har­mony has not been a com­pany to is­sue blan­ket “no com­ment” state­ments on cor­po­rate ac­tion.)

It’s equally dif­fi­cult to read the di­rec­tion of Har­mony Gold’s broader cor­po­rate in­ten­tions, partly be­cause it has so many pos­si­bil­i­ties in play. One is the use of Vil­lage Main, in which Har­mony has a 37,8% stake (as of June), to sep­a­rately list a sur­face re­treat­ment busi­ness.

An­other is how it in­tends monetis­ing its ura­nium slimes near its Rand­fontein mine on the West Rand.

Har­mony has al­ready con­firmed it has a heads of agree­ment with Ren­ova to po­ten­tially swap the ura­nium for ex­plo­ration prop­er­ties in Rus­sia. “They’re quite cute as­sets,” says Swanepoel of the Rus­sian prospects. Due dili­gences are un­der­way.

Mean­while, Swanepoel has con­firmed hav­ing been ap­proached by DRDGOLD, which wants to sell its Aus­tralasian as­sets. Har­mony Gold has a strong pres­ence in Pa­pua New Guinea, but Swanepoel says he’s not par­tic­u­larly tempted to deal, al­though he will con­sider the pos­si­bil­ity.

An­other, as yet float­ing goal, is the po­ten­tial list­ing of Har­mony’s de­vel­op­ing PNG mine, Hid­den Val­ley. Last year, Swanepoel spoke of sep­a­rately list­ing the mine in Toronto but then stepped back from the pro­posal, fear­ing it was too soon.

In ad­di­tion to the many cor­po­rate op­tions, there are op­er­a­tional dif­fi­cul­ties at home, re­mem­ber­ing that 95% of Har­mony Gold’s 3m oz/year comes from SA.

Swanepoel has promised to con­tinue fix­ing the SA mines. But again this raises a ques­tion over strat­egy: whether Har­mony wants to con­tinue grow­ing ex­pan­sively, as it has done un­der Swanepoel for more than a decade, or be­come more in­ward-look­ing than be­fore. And if it’s both, where is the se­nior man­age­ment in the com­pany to com­plete all this work?

“The way I read it at the mo­ment is that Bernard is turn­ing this way and that, and con­stantly chang­ing his mind,” says an an­a­lyst who prefers to be un­named. For all this, Har­mony finds some favour among gold an­a­lysts.

Mer­rill Lynch gold an­a­lyst Shaylen Trikam­jee said in a re­port dated 5 March that Har­mony Gold was a buy based on the fact the stock­bro­ker was bullish on gold. JP Morgan’s Steve Shep­herd and Al­lan Cooke be­lieve fore­cast­ing risk re­mains high with Har­mony but “... there should be an im­prov­ing op­er­at­ing per­for­mance and mar­gins in the medium term as higher-grade projects and ac­cel­er­ated de­vel­op­ment be­gin to de­liver”.

The cor­po­rate op­tions sug­gest Har­mony Gold re­mains a com­pany in flux, still strug­gling to come to terms with its fail­ure to buy Gold Fields and, more re­cently, West­ern Ar­eas.